Toys “R” Us Gets a Second Life amid Tough Retail Environment

Toys “R” Us is getting back into business again. The company plans to open two new stores this holiday season. Tru Kids Brands, the owner of Toys “R” Us, in joint-venture with b8ta, will raise curtains on two stores located at Simon Mall, The Galleria in Houston and Westfield Garden State Plaza in Paramus. However, the store won’t have long aisles and a plethora of toys. Instead, Toys “R” Us will have small-format stores. The stores will focus on an immersive experience and new ever-day activities, Tru Kids announced on Thursday.

The idea is to provide a highly-engaging experience with popular toys and interactive events for kids and parents. The company will leverage b8ta’s expertise to provide an interactive environment for kids. The new retail model will allow brands to showcase products and create tailor-made experiences.

We think that Toys “R” Us is on the right track. Providing a more engaging environment for kids could work in the company’s favor. The trend is gaining popularity. Recently, toymakers, including Hasbro (HAS) and Mattel (MAT), have witnessed soft sales. Amid challenges, Mattel and Hasbro are investing in live events, digital gaming, and online content.

However, the joy associated with unboxing and playing with toys is still irreplaceable. With the right mix, Toys “R” Us could slowly regain its momentum. However, competition from big-box retailers, including Target (TGT) and Walmart (WMT), could still be a problem. Both of these retailers benefited when Toys “R” Us went out of business. Target posted stellar holiday numbers in November and December last year. Target’s toys registered strong growth.

Why did Toys “R” Us close?

Toys “R” Us went out of business. The company didn’t keep pace with changing retail dynamics. Notably, digital games and online content appeal more to kids. Due to technological advancements, digital devices are more affordable. As a result, kids have been gravitating toward digital devices.

There’s has also been more competition. Amazon expanded and big-box retailers offered lower prices, which made the situation worse. Toys “R” Us was crippled due to its debt load. Mounting debt amid dwindling sales led debtors to pressure the company’s management to liquidate the inventories.